No SP support for European Stability Mechanism Treaty

22 May 2012

No SP support for European Stability Mechanism Treaty

SP Member of Parliament Ewout Irrgang is urging his fellow MPs not to give their agreement to the so-called European Stability Mechanism treaty, which would establish a permanent emergency fund in the Eurozone. The ESM Treaty would put an end to the Netherlands’ right to have the final word on the spending of up to €40 billion of Dutch taxpayers’ money from the new emergency fund. In Irrgang’s view moneys from the temporary emergency fund, the EFSF, have to date been spent badly, in ways which were aimed at imposing austerity policies which have done nothing in practice to solve the problems. In addition, control of the spending of resources from the fund has, he argues, not been well regulated.

Ewout IrrgangIrrgang believes that Parliament should not in any case even have debated the legislative proposal for the approval of the ESM Treaty this evening, as he explains. ‘Normally such legislative proposals which are the subject of major political differences are declared by Parliament to be controversial in the event that the government has, as now, fallen. The usual practice is that they may not be treated until after the election, which gives the electorate the first say. Unfortunately Labour, the Green Left, and the centre and centre-right parties have decided that this proposal must nevertheless be handled before the elections, despite the fact that there is no need for this. This can only further undermine confidence in “Europe”. After the way in which the Euro came into being and the affair of the European Constitution, it seems that this time too the Dutch citizen will not be given any say on far-reaching decisions as a result of which the Netherlands will lose control over tens of billions of our taxpayers’ money. If the voters are to be taken seriously by these parties, they must be given the chance first of all to express their views.’

The MP, who is the SP’s parliamentary spokesman on economic affairs, sees it as indefensible that the three biggest EU member states – Germany, France and Italy – will maintain their veto rights over the spending of taxpayers’ money from the ESM emergency fund, while smaller countries including the Netherlands have to give it up. This will mean that €40 billion of Dutch taxpayers’ money will be spent without the country’s parliament being given the final word.

In addition, plans for monitoring by the European Court of Auditors on the spending of resources from the ESM emergency fund are inadequate. It remains unclear whether the ‘Audit Committee’ will be empowered always to conduct investigations on its own initiative. It will not, moreover, be entitled to decide for itself where the conclusions of its investigations will be published, but will only be able to include them in its annual report.

Any country which has made use of the ESM’s temporary forerunner, the European Financial Stability Facility, will now be obliged to carry through huge spending cuts, which will frustrate economic reconstruction. Instead of resolving it, this imposed policy of austerity has to date only exacerbated the eurocrisis. Irrgang has repeatedly advocated an alternative based on stimulation of the economy in countries such as Germany and the Netherlands in combination with a bigger role for the European Central Bank (ECB) in the restructuring of debt in countries where the need for this exists. In his view, current plans for spending the ESM emergency fund are reason enough to withhold support.

Read below extracts from Ewout Irrgang’s speech to Parliament:

‘We should not actually be standing here today at all. We should not be standing here today because after the fall of a government Parliament does not deal with any controversial legislative proposals. In such cases, the voter has his or her say first. And if anything is controversial it’s the European emergency fund, the ESM.’

Having made this point, Irrgang then concedess that ‘nevertheless a large majority…. has decided that this legislative proposal’ which must be passed into law before the ESM Treaty can be ratified must indeed be debated and voted on, naming the parties which form this majority: the two centre-left parties the PvdA (Labour Party) and Green Left, the centrist D66, the two small Christian parties the SGP and the Christian Union, and the two centre-right parties which made up the minority government which fell recently, the Christian Democrat CDA, and the market liberals of the VVD. He then continues by saying that this is the kind of thing which has made the electorate so angry with the way their political representatives are conducting themselves over ‘Europe’.

‘This is the way in which the common currency, the Euro, was forced through at the end of the last century. The date of 1st july 2012 was nominated by the heads of government for the introduction of the ESM emergency fund, but it’s not a deadline. The minister says as much quite literally in answer to a written question from us on the issue which I will quote: “There is indeed no question of a duty for the Netherlands to complete the national ratification procedure in July 2012.” …. Even if you want the emergency fund to be able come into force quickly, the agreement of the Netherlands is not necessary to start the emergency funds up. The threshold for coming into force (of the treaty) has even been lowered by choice to 90% of the signatories in order to ensure that no country can block it on its own. That applies to “small countries”, that is, big countries can indeed do so because each represents (due to weighted voting) more than 10% of the signatories. Why then is there so much haste to approve this emergency fund? Do we ourselves need in the coming six months to call upon it? No. That has also been confirmed in writing by the minister. In short, there is absolutely no reason for haste, except that the electorate will then be unable any longer to express its views….

‘Voting to approve this emergency fund will mean that the Netherlands will be giving away its power to the ESM emergency fund to spend €40 billion in Dutch taxpayers’ money without the Netherlands having the final word over it. There is after all no veto for the Netherlands in relation to spending from the ESM emergency fund when the ESM emergency fund judges there to be any question of an “emergency situation”. A decision is in that case taken by a qualified majority of 85%. This means that countries with fewer than 15% of the votes, including the Netherlands, will lose their votes. Countries with more than 15% of the votes – Germany, France and Italy – will have a veto.

‘At least as important for my political group is that we have major objections to the way in which the current temporary emergency fund, the EFSF, is being used. The EFSF, and soon also the ESM, are being used in southern European countries to impose an ultraliberal austerity policy which does not work and which to date has succeeded only in giving European banks a few years respite in return for extremely high economic and social costs. This failing European policy deserves no reinforcement in the form of the establishment of this emergency fund. This joint EU-IMF policy, by means of which countries must become competitive again through the lowering of wages, does not work, because countries with a heavy burden of debt are forced to sink deeper into a crisis of debt as a result of the fact that lowering of wages coupled with austerity results in negative economic growth and the burden of debt becoming still more untenable. Instead of this a stimulation policy is needed in northern Europe in combination with monetary easing on the part of the ECB and reconstruction of debt in southern Europe, so that Europe as a whole can begin to grow strongly and we can put the eurocrisis behind us.’

After summarising these objections, Irrgang moves on to a different type of criticism, that there have long been warnings from the European Court of Auditors that spending through the emergency find is inadequately monitored:

‘Their warnings have led to the installation of a Board of Auditors, a sort of mini-Court of Auditors just for the ESM itself. Although this isn’t ideal, it is nevertheless a step forward. But the precise powers of this Board of Auditors are still not clear. Can the Board of Auditors for example in all cases make investigations on its own initiative? And why can this board not decide for itself about when it will make something public or when it will broach something? The minister too called the lack of clear agreements over monitoring and responsibility a gap in the text of the treaty. Now the minister is promising to put the case for numerous improvements in the so-called bye-laws, the accompanying laws. How much support can his efforts count on, however, from the other treaty countries, in view certainly of the scant progress in other areas, such as the European budget, in improving answerability? In relation to this too this Parliament will pay a price: having once ratified the ESM Treaty, if the accompanying laws do not rapidly give adequate monitoring powers to the Board of Auditors, this Parliament will no longer be able to withdraw its support from the ESM Treaty. It’s a bit like taking a leap with your eyes closed and hoping that you land on your feet.’

He then deals with the question of the cost of the treaty to the Dutch taxpayer:

‘How much money will we soon have to pay out to this ESM emergency fund? Whatever else, there’s the €4.6 billion which will have to be deposited between now and 2014 and because of which our national debt will increase by €4.6 billion. In addition there’s a further €35.4 billion in guarantees. Any registered capital which is not paid in full may be requested at any time and each time this happens our national debt will increase by the same figure. Now how will that work? Will the sums of money be properly laid out in a supplementary budget and are we as a parliament then duty bound to vote in favour? Will then our treaty-based legal obligation come before the constitutional budgetary rights of this Parliament? What will happen if this Parliament refuses to approve a supplementary budget?’

After criticising the positions of the parties which have declared their intention to vote to approve the Treaty, in some cases pointing out the contradictions in their stance, Irrgang expands on his point that it will undermine the Netherlands’ rights as a sovereign nation:

‘Whenever the director of the emergency fund requests capital, the Netherlands will be obliged, irrevocably and unconditionally, to deposit the money within a term of seven days. There is no need for any decision beforehand from either the Board of Governors or from the directors. The minister says that this must be used only in exceptional, acute cases, but in the ESM Treaty itself all that is said is that the director of the ESM must confirm a potential shortfall in ESM resources. Yes, well, that’s the least you might wish for. But okay, let’s say that the director is asked to demonstrate that there is indeed an exceptional, acute case. What criteria will be applied? What constitutes “acute”? What is “exceptional”? Does the minister not also foresee exceptional forms of aid loans coming from the emergency fund? ….. If we’re talking about acute cases, can the minister not envisage a situation in which a member state receiving aid can no longer meet its obligations to the ESM, and because of this the ESM itself can no longer fulfil its own obligations? Would this not be the case if Greece were to decide to leave the Euro and suspend its contributions to the ESM because they had no money left…. As Greece will in the coming month possibly find itself without any money, this is decidedly no theoretical scenario.

“The risk that we run is, moreover, much greater than the forty billion of the emergency fund. We have, lastly, also still got a temporary emergency fund with a guarantee ceiling of €98 billion. In addition to the 4.6 billion that must in any event be deposited, we will be putting, via the total guarantees, more than €134 billion at risk. The minister notes in relation to this that the Netherlands’ guarantee ceiling has been temporarily exceeded. What is the use of a guarantee ceiling if it can immediately be breached? How temporary is this in reality? To July 1st, 2013?

When may a call be made on the ESM? According to the Treaty this may only be activated if this is indispensable to guarantee the stability of the eurozone. How long does “indispensable”’ last? Is this not, moreover, not an extremely subjective idea? For the lending of aid unanimous approval must be given, except in the event of an emergency situation, when 85% of the votes cast will suffice. And this is where the shoe starts to pinch. What precisely is an “emergency situation”? The minister writes that an emergency situation is occurring if the European Commission and the ECB both conclude that delay to a decision over a loan or implementation of financial support will put the economic and financial sustainability of the economy in danger. Once again, that sounds somewhat like that “indispensable”. If you want to, you can always say that there’s an emergency situation and that will then be precisely what happens. It means that the Netherlands cannot oppose an aid operation. And such an aid operation can also involve “recapitalisation of a financial institution”. We will very shortly be wanting to use the ESM emergency funds to rescue Europe’s Landsbankis.

Aid operations in the form of interventions in secondary markets also raise questions. When in such case can it be said that intervention is indispensable? Is a scenario imaginable in which a member state finds this unnecessary, while the others do not? How much say will our Parliament retain once the emergency fund is in place? The Netherlands cannot veto any operation from the emergency funds if on the advice of the ECB and the European Commission it is said that there is an emergency situation. We still have consultations with the minister on the parliamentary involvement in operations from the EFSF and the ESM. My group has, from the report of the De Wit parliamentary commission in any event drawn the conclusion that the minister should not be given too much freedom in this because when it is a matter of political intention, a minister must always be prepared to take advice from Parliament. That means that the SP group will not be agreeing to anything regarding the operations of the EFSF and ESM on which we are informed only after the event.

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